How to retire comfortably

The following general rule of thumb can be followed, however each individuals situation is different and you really should seek appropriate personal advice:

If you wish to retire on $65,000pa you will need $1.625 million capital as a minimum by retirement at age 65.  (Assuming 25years of retirement)

Age 20 – 30

How to get there

  • Aim to contribute 10% of your gross salary to super over the long term
  • Get onto the property ladder first
  • Build good savings habits
  • Seek financial advice
  • Make sure you know the hidden traps of your super and remember super is not just about the fees – you need to get your investment right.

How to make it last

  • Check the fees and insurance premiums you are paying
  • Retire with no debt on your home
  • Once you have a property under your belt, start thinking about contributing more to super
  • Learn to live within your means
  • Save your next pay rise
  • Know how your super is invested
  • Remember that super is a tax system, not a product, and what you do with it is your choice.

Age 30 – 40

How to get there

  • Have a written plan
  • Pay off your mortgage as quickly as possible
  • Use free cash flow to salary sacrifice
  • Make smart asset-allocation decisions within your super
  • Maximise your personal super contributions as retirement approaches

How to make it last

  • Monitor your super fees
  • Live to a budget now and stick to it even as your reduce your mortgage
  • Consider transitioning to retirement via contract or part time roles to extend your working life
  • Encourage good financial habits in your older kids by charging them board
  • Use proceeds from downsizing to top up your retirement savings.

Age 40 – 50

How to get there

  • Have the higher income earner salary sacrifice up to the maximum concessional contribution limit
  • Have the higher income earner start a savings plan in the lower earning spouse’s name through a family trust

How to make it last

  • Draw a pension at the minimum level.  At 65 this is 5% of the super balance.
  • Invest in an appropriate manner.  This means long term stable investments that can produce a 7% earnings rate not just for the 20 years leading into retirement but throughout the rest of their lives.
  • Keep some savings in cash.  At retirement, have sufficient secure investment buckets either in cash or term deposits to cover pension payments for up to 5 years.  This means that if there is a downturn in share market, you do not need to sell the shares.

Age 50 – 60

How to get there

  • Salary sacrifice pre tax income to super
  • Make post tax contributions to super from surplus cash flow or savings
  • Commence super income streams (Transition to retirement pension)
  • Enhanced structuring and use of super income streams
  • Accumulate wealth in the concesionally taxed super environment
  • Increase exposure to capital growth assets including Australian and international shares and property inside or outside super
  • Accelerate debt reduction or decelerate debt reduction depending on individual circumstances (sometimes redirecting cash flow from debt repayment to other objectives can provide a net wealth benefit.
  • Borrow for investment should the capital objectives not have a high probability of being achieved and the risk profile affords this strategy.

How to make it last

  • Preserve the capital for the long term and resist spending too much on lifestyle
  • Review financial situation annually to work out entitlements to the age pension
  • Consider longevity risk
  • Keep the correct asset allocation for annual draw down requirements
  • Have sufficient capital in defensive assets to be able to meet pension payments throughout the cycle of a market downturn to help protect the portfolio over the long term
  • Have a trusted advisor to help you negotiated the investment market cycles and social security landscape.
Posted in Accountant, Retirement

Thinking of starting your own business

Quitting your day job to start up your own business venture can be a scary and daunting process.

Statistics show that 50 percent of all new businesses fail within the first five years and only 3 per cent of those remaining ever make it tot he 10 year mark.

A simple lack of planning is the reason that a vast majority of businesses fail.  So first and foremost, have a business plan.  Outline your goals, budget, strategy, target market and marketing strategy.

Next, start out part time so that you can still generate an income while things are starting out slow.

Without a safety net of income you are going to need some backup capital to cover the slow times of your new business.  Income does not come flooding in the first day you start your business.  Save every penny you can so that you have some capital to survive off.

Test and measure which advertising and marketing strategies work for you and don’t keep pouring money into things that do not work.  And finally, seek advice from a specialist and business coach to keep you on track.

Plant and Associates Pty Ltd

07 5596 5758

www.plantandassociates.com.au

Posted in Accountant

Do you want to save paying Fringe Benefits Tax of 49%

Fringe Benefits Tax (FBT) applies to any business (including sole traders) who provide non-cash benefits to employees, business owners, some contractors and their associates (including family members). The FBT year runs from 1 April to 31 March and the FBT rate  for the 2016 year (ending 31 March 2016) is 49%. We have recently contacted business clients that we think may be subject to FBT in order to review their circumstances and reduce the amount payable. If you are concerned that you may be subject to FBT, please contact our office to discuss.

There are many types of fringe benefits, however the 2 most common benefits provided are motor vehicles and entertainment and these are discussed below.

Motor  Vehicle Benefits

Motor vehicle benefits are provided where a business owns a vehicle (e.g. a car, ute, truck or motorcycle) and it allows an employee to have access to that vehicle for private use. The FBT law applies when the vehicle is “available” for the private use of the employee, even if it is not actually used for private purposes. E.g. if a business vehicle is garaged at the employee’s home overnight (rather than at the business premises), then it is deemed to be available for private use and will therefore be subject to FBT. There is no exemption where the business premises and the employee’s home are the same address.

The best way to reduce the amount of FBT payable on motor vehicle benefits is to ensure that a log book has been kept for the vehicle for a minimum of 12 weeks. It is not sufficient for the employment agreement to simply state that the vehicle cannot be used for private purposes. In the event of an ATO audit, the business will need to prove what the actual business usage of the vehicle was via a log book.

Whilst there are some exemptions available for certain types of vehicles (mostly utes and trucks), they are dependent on the only private use of the vehicle being for the employee to travel directly from home to work, with no other private usage. Unfortunately, if an employee drops their children off at school each day in the vehicle, or they do the shopping on the way home from work, then the vehicle would not be exempt from FBT. Again, the only way to ensure that the vehicle will satisfy the exemption is to ensure that a log book has been kept.

The FBT on a motor vehicle benefit can be quite extensive. E.g. A business purchases a car for $22,000 and allows an employee (or business owner) to drive the car home everyday. No log book is kept for the vehicle. The FBT payable on this benefit for the year would be $4,627.07.

Entertainment Benefits

Entertainment benefits arise when an employer provide food, drink, gifts and/or recreational activities to employees, associates, contractors, clients and suppliers. Some common types of entertainment benefits are as follows:

  • Staff Christmas party held at a restaurant or function centre
  • Restaurant meal at a business lunch
  • Tickets to a sporting or theatrical event
  • Staff conferences and weekend retreat

There are various ways that these benefits can be valued for FBT purposes and there are also some exemptions available. It is important to record the following in regards to each of these benefits provided during the year:

  • Number of people provided with the benefit (including how many were employees and how many were clients);
  • Location of the event (e.g. on business premises or at another venue)
  • Total cost of the function, including a break up of the costs for each where possible (e.g. if the event includes a meal and a game of golf, the cost of each should be listed separately).

If you have any questions regarding this matter please do not hesitate to contact our office.

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Claire Chapman  CA

Nerang (Head Office) | PO Box 3284 Nerang East QLD 4211 | Suite 5, 39-41 Nerang St Nerang East

Brisbane Office | Suite 4, 13 Cameron Street, Beenleigh     

P: (07) 5596 5758 |  www.plantandassociates.com.au

Posted in Accountant, Bookkeeping, Business